I don't understand this comment. 1) SVB was not managed by VC's. 2) SVB went under because they bought US Treasuries, not because they took risky bets on startups.
I see it the other way around. The VCs started a panic. Name one other bank that could survive $42 billion in withdrawals in a single day. Other than Bank of Zimbabwe, obviously. Even Wells and JP Morgan would collapse under that strain. The VCs caused their own pain.
Yeah, but what are the specific cash amounts we are talking about?
Such extreme exposure to interest rate risk would've blown up in some other ways - say, a large client processing a routine payroll, executing stock buyback, or investing in an entity that banks elsewhere.
SVB had risks, VCs did what they should do to respond to said risk. Would you blame regular working class people in a retail bank run scenario for wanting to save their money from potential risk?
No. SVB price crashed 50% in one day and got downrated by Moodys, which exposed a bunch of red flags that would have resulted in a bank run regardless of what VCs said.
The stock crashed because of the initial pseudo bank run due to high interest rates on capital (at least that's the reason given for withdrawals), and the bank's subsequent failure to make up the difference after selling a treasuries portfolio. After which a real bank run occurred. Then the bank started down a path of a more desperate measure, and that's when they were shut down. At least that's what I got from an article.
1. If they had more short dated treasuries, they could have used them to fund drawdowns, and would not have had to sell their long dated treasuries, that went underwater as interest rates rise.
2. If they had not been overly exposed to one sector, a sector that largely existed due to 'free money' of zero interest rates, then large scale draw downs would not have happened as interest rates rise.
YC asked for exactly what just happened. (Depositors be made whole.) They did not ask for anything beyond what regulators ultimately deemed reasonable.
I think this is very much in question. Silicon Valley Bank was absolutely part of a cohesive microeconomy. There's no other explanation for the absolutely uniformity with which all those startups were using it for what should have been 100% commodity banking services. Those startups all banked with SVB because their VCs told them to.
And the VCs told their startups to bank with SVB because... we don't know yet. But any time you have a signal this strong, there's a driver.
Add to that the fact that the moment all those startups seemed likely to lose banking services, however temporarily, those same VCs freaked the fuck out of their minds on twitter and started shrieking in all caps about the end of western capitalism. That's not mere concern for their poor startups (most of whom were going to fail anyway, after all -- they're startups!). These VCs were exposed to the SVB failure. They were leveraged somehow and about to get caught holding the bag.
There was some kind of insider dealing going on with SVB. It wasn't just a bank. We for sure know that much. Whether we have criminal fraud or not is an open question.
SVB made loans to cash-rich companies approximate to their funding rounds, when they were least likely to immediately use the cash. These loans typically required the company to hold the money as a deposit in SVB. These deposits were used to buy long duration bonds.
In other words, SVB used these companies to produce new money that they could earn interest on.
Yeah, that's the kind of thing I'm imagining. Though it doesn't explain the VC tweetpanic unless they were getting kickbacks. Is there a cite for that, or a story posted somewhere?
One element is that the banking industry as a whole behaves pretty chaotically with 'unusual' customers.
Big wire in from a fundraising round? Account frozen. Big wire out for an acquisition? Account frozen. Bank learns your customers include cryptocurrency companies? Account frozen. Bank account balance huge relative to your business' cashflow? Account frozen. Random bank staff doesn't understand what you're doing? Account frozen.
In that kind of climate its almost inevitable that VC's would recommend a single bank known to not behave erratically for the activities that are usual for their investments.
"I just hope nobody forgets how prominent VCs behaved during the brief period of uncertainty."
The point is that these VC's didn't act to support their investments, they flailed around begging for bailout (that they probably didn't need but they didn't understand banking well enough to know that or bother to consult any experts before making public statements).
They behaved badly and should be embarrassed and everyone should remember it.
Why do you find it believable that they asked for government intervention to protect "the innocent" as opposed to simply acting to protect their own private financial interests, which seems to be the simplest explanation?
I'm not even convinced that the depositors made whole here were innocent--they accepted a known risk by exceeding the risk-free FDIC limit. The sad part is that in our society, we have no qualms about literally turning working people out into the street when they make financial missteps, but the already-wealthy receive prompt intervention from the highest levels to protect them and other wealthy people from the consequences of their investment decisions.
What argument is really left for this kind of intervention, besides appeals to the trickle-down system where the rich must be vigilantly protected since the rest of our society is set up to be disrupted when they fail. The whole system is morally and politically bankrupt.
> Why do you find it believable that they asked for government intervention to protect "the innocent" as opposed to simply acting to protect their own private financial interests
They are the innocent party here though (well, except for maybe Peter Thiel). The depositors didn't cause this problem.
Being against student loan forgiveness or any sort of help to anyone, ever, but then running to mommy Yellen the second you get in trouble is just too hypocritical to believe.
If that's where you (philosophical you, not you personally) landed on those two issues, you can get fucked.
They begged for special dispensation that they didn't ever need. They proved themselves to be both selfish and ignorant and deserve any derision they receive.
This was an extremely obvious example of when the private sector could've collaborated to solve a problem. SVB was doing a capital raise just last week. Instead the VC community colluded to accelerate the problem and is now asking for a government bailout
What innocent? They could have sold the uninsured deposits at a discount, made payroll, and let the equity eat the loss. Instead they went on an embarrassing bailout begging extravaganza and unfortunately succeeded. Nobody, ever, should take any of these people seriously again.
They actually brewed up the contagion. Without the alarmism everyone would just assume that they get a 10-20% haircut and have most of their money back within a week
SVB regularly provides credit to risky startups, which is why they existed in the first place (because other banks wouldn't lend at those rates). So, yes, they sorta did place risky bets on startups.
Source for this? All evidence show that their failure at least started with them owning a lot of "safe" bonds, whose value declined with increasing fed rates.
Yes, long-term treasuries which for years had been at very low interest rates. You're certainly right that they shouldn't have done that, but it doesn't invalidate GP's point.
